Bond Yields Drop on Higher Inflation

Yields on FGN bonds declined marginally on Monday in response to the higher inflation figures for October announced by the National Bureau of Statistics (NBS), findings by THISDAY has shown.

THISDAY checks also revealed that only yields on two of actively traded bonds were stable on Monday, while yield on five others reduced.
Nigeria’s year-on-year inflation increased to 11.7 per cent in October from 11.3 per cent the previous month.

According to the latest Consumer Price Index (CPI) figures released Monday, year-on-year, the relative moderation in headline inflation in September was offset by the rising cost of food items. The food index increased to 11.1 per cent in October from 10.2 percent over the same period

As a result of these, while yield on the 9th FGN Bond 2017 Series 2, reduced to 12.73 per cent, from 12.83 per cent last Friday, yield on the 5th FGN Bond 2018 Series 2, also fell to 13.08 per cent on Monday, from 13.23 per cent it was on Friday.

Similarly, just as yield on the 6th FGN Bond 2019 Series 4, dropped to 12.55 per cent, from 12.79 per cent on Friday, yield on the 9th FGN Bond 2022 Series 1, declined to 12.46 per cent, from 12.60 per cent last Friday.

Today, the Debt Management Office (DMO) will auction N50 billion bonds. The DMO calendar showed that the bond auction would be N25 billion each of 16 per cent June 2019 (re-opening) and Jan 2022 (re-opening) respectively.

But Emerging Markets Strategist, Standard Bank Plc, Mr. Samir Gadio, insisted that despite the character exhibited by the bond yields on Monday, there was an indication that the market was not particularly concerned about the CPI outlook, saying that investors anticipated a favourable trend on a multi-month basis.

According to Gadio: “The positive expectations for inflation and a turn in the monetary policy cycle, coupled with decent foreign capital flows into the bond market and possibly less FGN bond issuance next year, point towards further yield compression.”

He predicted that Inflation might drop to reach single-digit in the first quarter of 2013.

“The recent floods will slow the downward trajectory of inflation. Given the high-base effects in the CPI time series in first quarter 2012, it is however highly likely that inflation will still reach single digits early next year.

“The main upside risks come from a hypothetical new round of fuel price deregulation in 2013 and a reasonably low probability of a disorderly move higher in dollar/naira relationship,” he argued.

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